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**Unformatted text preview: **FIN 534 Test 3 Question 1 Which of the following statements is CORRECT? Answer Correct Answer: If a loan has a nominal annual rate of 8%, then the effective rate will never be le than 8%. Question 2 Which of the following statements is CORRECT? Answer Correct Answer: Time lines can be constructed to deal with situations where some of the cash flows occur annually but others occur quarterly. Question 3 You are considering two equally risky annuities, each of which pays $5,000 per year for 10 years. Investment ORD is an ordinary (or deferred) annuity, while Investment DUE is an annuity due. Which of the following statements is CORRECT? Answer Correct Answer: A rational investor would be willing to pay more for DUE than for ORD, so their market prices should differ. Question 4 You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would increase the calculated value of the investment? Answer Correct Answer: The discount rate Question 5 Your bank account pays a 6% nominal rate of interest. The interest is compounded quarterly. Which of the following statements is CORRECT? Answer Correct Answer: The periodic rate of interest is 1.5% and the effective rate of interest is greater t 6%. Question 6 Which of the following statements is CORRECT? Answer Correct Answer: Time lines can be constructed where some of the payments constitute an annuity bu others are unequal and thus are not part of the annuity. Question 7 You plan to analyze the value of a potential investment by calculating the sum of the present values of its expected cash flows. Which of the following would lower the calculated value of the investment? ...

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